In late 2011, Alex Umansky joined Baron to take over management of the Baron Fifth Avenue Growth Fund. We are pleased to report that since then, the Fund has significantly outperformed its benchmarks. We thought it would be a good time to provide an update on the portfolio, our strategy, and our outlook for Large Cap stocks.

Q. You made a lot of changes after you took over the Baron Fifth Avenue Growth Fund and the early re - sults are encouraging with the strategy outperform - ing its benchmarks by more than 15% over your first two full years (2012 & 2013). What are you doing differently?

A. Our portfolio has 30 to 40 stocks, to avoid over-diversification. There is no doubt in my mind that over-diversification has diminished active re - turns in the Large Cap equity category. The companies have been around for many years, are widely followed by analysts, and are typically very transparent. This is clearly the most efficient asset category. Having a portfolio of 80 or over 100 stocks in an effort to mitigate volatility makes no sense to me. As a long term investor or an owner of the business why should I care about daily or monthly stock price fluctuations? If you do care, you need to over-diversify to dampen the volatility effect but you will inevitably give up opportunities to generate alpha.

Another difference is in trading and portfolio turnover. I see no point in turning over 100% of a Large Cap portfolio, which is average for this category. If we can find four or five new ideas per year, that's a good/fertile year for us. The turnover in our Fund was always below average, but we reduced it even more and cut down on trading around positions.

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